Advice for a First Time Buyer

Those looking to buy their first home can expect to have to deal with a still difficult housing market. However, first time buyers should also remember that they’re comparatively better off than sellers in terms of drops in house prices, and that they have many options in terms of looking for mortgages. It is important, though, for any first time buyers to remember additional costs and the need for savings, as well as alternative buying options, and the importance of finding the right solicitors, surveyors, and estate agent combinations to get onto the market.

The Current Market

Housing prices are continuing to slide as the US market retains its depressed state – while the market is showing some signs of recovery, and particularly in terms of buyers being able to access more mortgages through the government’s Funding for Lending scheme for banks, as long as the economy is down, the housing market will likely follow suit. The hardest hit, however, are sellers that are trying to boost the value of their properties; new buyers can find deals if they’re prepared to look beyond large cities, and if they are prepared to take a risk on the housing market recovering at a faster rate over the next few years.

Mortgages and Deposits

To get a good mortgage in the current climate, you’ll need to be able to afford a deposit of about 20 per cent of a property’s total value. Borrowing money from parents, and dipping into savings, while having a strong credit score is necessary to make yourself attractive to lenders. At present, lenders are looking to issue mortgages based on three and a half times your annual salary, which results in $90,000 on a $30,000 salary. The repayment to income ratio for a mortgage also has to be close enough to give a lender confidence that you can make your monthly payments. When selecting a mortgage, try to find fixed rate offers that extend from two to five years, or consider getting a tracker rate against the base rate of interest. This may be a problem if interest rates suddenly rise, but can give you a clearer standpoint in terms of monitoring the market.

Savings and Costs

As well as paying towards a mortgage, you’ll need to have money in reserve for extra costs such as stamp duty, applicable to properties over $125,000, as well as property taxes, insurance, and redecorating costs. You can benefit from using tax free savings accounts like ISAs to set aside money for these immediate and future costs – current ISAs allow for annual tax year savings of about 5 and a half thousand dollars. You’ll also have to factor in the cost of household bills over a year, which might be over $1000 alone.

Alternative Options

There are a few alternative options to going through a standard mortgage application – as well as receiving financial support from parents, who can act as guarantors or shared tenants on a loan, NewBuy schemes offer government support for low income buyers. Deposits as low as 5 per cent can be made, with participating builders and the government covering the rest of a deposit alongside a mortgage, and receiving repayments in the future. Another scheme worth looking into if you and or your partner earn less than $60,000 a year is First Buy. In this scheme, the government and builders will provide a 20 per cent equity loan towards the total cost of a property, with your deposit and a mortgage covering the other 80 per cent.

Estate Agents, Solicitors, and Surveys

It’s also important to weigh in the fees involved in selecting and valuing a house. Getting an accurate valuation, which can be compared to seller valuations, will cost anywhere from between $350 for a basic valuation through to $1,000 for a full structural report. You’ll also need to pay solicitor fees in terms of negotiating a mortgage – while estate agent fees will be handled by a seller, you can benefit from using an estate agent to help you source and match up the right property for your needs.